Interconnectedness of Global Competitiveness, Logistic Performance, and Global Value Chain in Africa

Abstract

The distribution of production units across countries has long been a component of international trade as nations import products for production and subsequent exports. This has been necessary because of technological progress, plunges in transportation costs, and enhanced liberalisation policies relating to trade, economics, and the financial system. This has led to the emergence of the global value chain (GVC) as a standard component of 21st-century trade, constituting over 70% of all international trade. This has garnered benefits for participating countries, which are prepared and disadvantages for those that lack competitive advantage. The latter has been attributed to poor logistics performance and non-competitiveness, two crucial elements that countries need to get right and at high levels in order to upgrade the GVC and reap the benefits of international trade in this era of liberalisation. Unfortunately, this describes many of the countries in sub-Saharan Africa (SSA). This has important implications for countries in SSA striving to attain many of the Sustainable Development Goals (SDGs) and their large market size for raw materials as well as being one of the most open regions in the world. The scenario also describes an important relationship between global competitiveness and logistic performance that feeds into the level of global value chain participation by countries and the economic benefits from international trade. For the SSA region, where economic development is much needed to boost economic welfare, this complex relationship has become increasingly crucial for government and policy-makers. However, the extant literature is largely silent on this direction of research. The purpose of this thesis is to provide an empirical examination of the interrelationship among global competitiveness, logistic performance, and global value chain participation in Africa. Interconnectedness of GCI, LPI, and GVC in SSA ii First, the relationship between global value chain participation and competitive competitiveness in SSA countries is investigated in light of how the relationship produces economic prosperity. In so doing, the role of logistic performance in the GVC space is examined as either a moderator or a mediator. The study spanned 2007, 2010, 2012, 2014, 2016, and 2018 for 25 SSA countries for which data1 is available for logistic performance and competitiveness. The results confirm the important influence of logistic efficiency in the global value chain for the African participants. However, the study has thrown more light on the differences in the mediating roles logistic performance plays depending on whether global competitiveness or global value chain participation is the driving motive for improving national income earnings. The lack of clarity on the specificity of the mediating role of the logistics performance index (LPI) in the bridge between gross domestic product (GDP) and global competitiveness index (GCI) should be taken seriously. This points to the difficulty in the policy space as to what to focus on in the complex global market. This is especially true for African countries as they are positive and delicate because of their inclination towards upstream participation. More clarity is needed on this front while chasing the clearer role of logistic performance in the link between GDP and GVC. Second, due to the importance of competitiveness in improving logistic performance and subsequently leading to greater participation in the GVC, the interaction among the pillars of GCI and the dimensions of LPI are examined for deeper insights on how they explain GVCs participation in Africa. The GCI and its 12 pillars, namely institutions, infrastructure, the macroeconomic environment, health and primary education, higher education and training, goods 1 The same data and period is used for all the empirical studies in this thesis. Interconnectedness of GCI, LPI, and GVC in SSA iii market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation, and LPI and its six dimensions, namely; customs, infrastructure, ease of arranging shipments, quality of logistics services, timeliness, and tracking and tracing are interacted using the Tree-Augmented Naïve Bayes Network (TAN-BN), Partial Least Squares Structural Equation Modelling (PLS-SEM), and Importance-Performance Map Analysis (IPMA) to ascertain causal effects, correlations, and the relative importance of the pillars of GCI to logistics performance. The results reveal a significant positive relationship between most of the Pillars of GCI. Also, technological readiness is found to be the only Pillar of GCI that has a significant direct positive relationship with logistics performance. Conversely, higher education and training has a significant indirect relationship with logistics performance. Findings from this study imply that concentration on what drives logistics performance alone may hinder policy decisions due to the existence of linkages among the Pillars. It is recommended that governments in SSA invest extensively in technology and higher education and training to enjoin improvement in logistics performance while observing other pillars of GCI with caution. Third, considering the complex nature of the GVC and the driving force of competitiveness, the causal effect of GCI and its pillars on the various indicators of GVC is scrutinised. This is motivated by the fact that the ability of countries to maximise the benefits of GVC requires intentionality on the part of policy-makers to develop structures that facilitate and enhance the ability to participate at all levels of GVCs while recognising the complexity of the system. The network approach of Epskamp (2018) is employed to reveal the impact of competitiveness pillars on the indicators of GVCs participation in Africa as a complex network of a non-linear causal Interconnectedness of GCI, LPI, and GVC in SSA iv relationship. Both the GCI and its pillars and the GVC and its indicators, namely domestic valued- added (DVA) in exports, foreign valued-added (FVA) in exports, indirect domestic valued-added (DVX) in exports, and value-added (VA) are considered as networks which require no latent variables for interaction. The results indicate that in the complex network of the 12 pillars of GCI and four indicators of GVC, there is a dichotomy of clusters for the constructs (i.e. GVC and GCI). An interesting revelation is that there are negative causal relationships between some GCI pillars, notably, with market size. Further, there are other pillars which also have a negative influence on the indicators of GVC. These findings are disturbing, to say the least, but they are also telling of the need for governments to intensify their activist duties in order to improve competitiveness, especially those that enhance efficacy and productivity. To a large extent, those are also factors, except for market size, that benefits can flow through to GDP and economic growth and development. The results from all three empirical studies have one thing in common. That is, African countries can upgrade the GVC and international trade by improving their competitiveness and logistic efficiency to enjoy the benefits that accrue towards economic prosperity. They also point to the dominant position of market size, which can be leveraged to empower the continent in the international trade market place. Government and policy-makers are encouraged to intensify their roles as activists to foster a conducive operating environment for traders and all players in the GVC in their countries